If the structural problems of inequality, racism, immigration and unemployment seem beyond our control, why not simply change what we can, here and now? And why not use our cell phones and laptops to do it? Because Silicon Valley itself shows us it won’t work.
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The 2010 French pension reform has now been passed by the French Parliament, after weeks of protests, strikes and even riots, all of which have aroused incomprehension in foreign media. The headline increase of the “legal retirement age” from 60 to 62 sounded to most pundits a very small step towards the sustainability of public finances when many European countries have already increased normal retirement age to age 67 or even 68. This short piece is not about the reasons behind the acute reaction of the French street – which would encompass much more than pensions. It aims simply at presenting the reform, its likely distributional impact and its effect in terms of financial sustainability. (in French; Italian version on LaVoce, English version to be published on VoxEU). lire la suite

In order to increase the proportion of employed senior workers, it has been suggested to cut their and their employers’ social security contributions. That proposal deserves attention, since it acknowledges the necessity of raising the senior workers’ employment rate, still very low in France. But such a policy may be flawed and in the context of the pension system reform one may think twice before implementing it. (in French) lire la suite

The past few weeks have been economically challenging for economists who live in or deal with Germany. For starters, the parliament just passed a minimum wage for postal workers. Second, the country is in the grips of a national discussion of “the excesses of managerial pay”- and a significant number of politicians have argued for caps on executive pay – maximum wages! And precisely because the quality of economic discourse surrounding these issues is so abysmal, one may need to think twice when assessing whether Germany has made any fundamental progress on labor market reforms. lire la suite

In the 1990s, a number of European countries undertook far-reaching labour market reforms to combat high unemployment. At their heart, these reforms were essentially a “carrot & stick” approach, where the “carrot” consisted of (mandatory) activation measures such as job search assistance, on-the-job training, or subsidized employment, while the “stick” consisted of sanctions on unemployment benefits for failure to comply with job search requirements. Specific sanctions ranged from the short-term discontinuation of benefits to permanent and in some cases substantial benefits reductions. As I read the current evaluation literature especially combinations of “assistance and sanctions” were successful in increasing the exit rate to work.
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The labour force in Britain has grown by 212 percent since 1851; over the same period, the number of jobs has grown by 212 percent. So - ignoring the business cycle - a market economy always provides more jobs, if there are more people «effectively» seeking work. The issue is how to increase the «effective» supply of labour. So let me focus mainly on the supply side of the labour market and, especially, on the problem of mobilising the unemployed in France. I will accordingly say a little about wage flexibility, which should be central to the demand side, and about skills.
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It is almost commonplace to say that France is one the OECD countries where employment protection laws are the stricter. Restrictions to both the recourse of temporary contracts and the possibility of layoffs for permanent contracts are the result of over 30 years of continuous regulation imposed by successive governments, either right of left wing. From that respect, the two new contracts (CNE and CPE) recently proposed by the government are genuine breakthroughs. By suspending employment protection laws they solve in a quite radical way the problem of a far too rigid doctrine on dismissal. However, by doing it only for the two years of the contracts, they only introduce a mild change in the actual flexibility of employment while they bear the risk to comfort the inefficient and unfair dualism of the labour market.
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There is no clear economic evidence that the partial reform of dismissal laws, such as the CPE recently passed in France, can have any significant impact on employment and unemployment rates. From that respect, such a reform should not have been submitted to parliament in the first place. However, if the reform is reversed in the coming weeks, there is a significant risk for a long awaited and more ambitious reform of employment protection to be neutralized for several years. The CPE must be held, not because this is the best reform ever to improve employment and unemployment performances, but rather because if it is reversed the opposition to any more ambitious reform will be durably reinforced.
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It seems that politicians have short memories. Almost exactly thirteen years ago, a freshly elected cabinet tried to change the rules setting the French minimum wage so that young and low skilled workers could be hired at a discount wage. Soon dubbed "minimum wage for youths", it sent thousands of college and high school students in the street and was quickly withdrawn by the then Prime minister Edouard Balladur. A remake of this bad movie is currently shot in Paris: the french prime minister Dominique de Villepin is confronted with a new generation of students rejecting a law introducing a more flexible labour contract with a two-year trial period for young workers. The endgame is likely to be the same as in 1993, in my view.
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